Business in Emerging Markets
This article will focus on the practices of businesses in emerging markets. Multinational corporations (MNC) are looking for growth opportunities, and they are finding them in emerging markets. Although the news appears to be promising for emerging markets, there are some concerns that need to be addressed. Six practices were identified to aid these businesses with developing new models on how to make the process successful and profitable. Given the growth of the emerging markets, many investors will be attracted to the opportunities. The role of the venture capitalist in emerging markets will be explored.
Keywords Board of Directors; BRICS Economies; Corporate Governance; Emerging Markets; Global Capital Markets; Intellectual Property Management; Joint Venture; Multinational Corporation (MNC); Venture Capital; Wholly Owned Subsidiary
International Business: Business in Emerging Markets
Multinational corporations (MNC) are looking for growth opportunities, and they are finding them in emerging markets. According to a study of multinational corporations, nearly 80 percent expect to gain a significant share in emerging markets, though less than 15 percent feel they have developed the proper marketing campaign to compete with local businesses and corporations (Market Wired, 2013). Antoine van Agtmael, a senior executive at World Bank Group, was the first person to use the term "emerging markets" (Jana, 2007). Many of the new ventures can be found in developing countries such as Brazil, Russia, India, China, and South Africa, which are known as the BRICS economies. The GDP of BRICS nations grew 4.1 percent from 2011 to 2013, as compared to 1.4 percent growth in developed countries during the same time period (G20, 2013). The significance of emerging markets has reached a point where corporations have recognized their influence on the corporations' bottom line. For example, Coca-Cola expects BRICS countries to make large contributions to its soft drink growth, planning to increase its investments in China by $4 billion in 2014 (BRICS Media, 2013). In the first quarter of 2012, Coca-Cola grew by 20 percent in India, 9 percent in China, and 4 percent in Brazil (BBC, 2012). Ford Motors predicts that the emerging markets will be major contributors to its goal to grow its worldwide automotive sales growth by 50 percent by 2015 (Meier, 2011). Some organizations have faced a slump in sales, but some businesses have tapped into the emerging markets as a source of revenue.
Concerns about Emerging Markets
Although the news appears to be promising for emerging markets, there are some concerns that need to be addressed. According to Olsen, Pinto and Virji (2005), there are some potential pitfalls:
- Organizations must deal with the same growth challenges that they face in other markets. Some of these challenges deal with (1) understanding what the customer wants, (2) developing unique and cost effective offers, (3) creating an effective marketing strategy and (4) overcoming internal organizational barriers.
- Organizations must be prepared for the instability and irregularity inherent within developing markets. Although venture capitalists are willing to fund these ventures, many seasoned venture capital managers are not willing to deal with fund management for these types of accounts.
- Corporate headquarter offices tend to take too much time when making decisions and communicating information, which hinders subsidiaries from reacting to problems in a timely manner. Organizations must eliminate the bureaucratic red tape and provide opportunities to respond quickly when solving problems. Another option would be to empower the subsidiaries to make decisions up to a certain level.
Practices to Aid in New Model Development
Olsen, Pinto and Virgi (2005) strongly believed that it was critical to develop a set of practices that would assist local and corporate leaders with achieving long-term success. Six practices were identified to aid these businesses with developing new models on how to make the process successful and profitable. The six practices were:
Given the level of uncertainty in emerging markets, it is almost impossible to predict what the future will hold, and many managers find it difficult to develop a long-term strategy about what direction the project should go. In lieu of a traditional approach to strategic management, the researchers have determined that managers can develop some sort of direction by outlining:
- Opportunities for a future market as well a SWOT analysis
- A broad, tangible plan that addresses financial, competitive and operational needs
- A two to four year short-term plan that will allow the organization to obtain its short-term goals.
Once these objectives have been met, the organization can focus on developing strategies over a period of time. These plans should allow the organization to adjust its strategy to new conditions. As the business continues to grow and be responsible about addressing issues as they arise, it will be in a better position to develop long-term strategies. Long term strategies (a) serve as a foundation for decision making, (b) extol local and corporate leader expectations (c) provide direction as to when a change in the local market necessitates a change in strategy.
Fit the Emerging Market Business within the Organizational Structure
Many multinational corporations hinder the decision making process of their subsidiaries that function in the emerging markets. This type of problem may occur in three ways, such as: (a) grouping emerging market subsidiaries with subsidiaries in the larger developed markets, (b) units cannot learn from one another when the organizations allow the structure or a process to minimize opportunities of sharing information, and (c) the organizational structure is outdated for the current trends and there is a constant need to make adjustments in the organizational design.
Many organizations may encounter problems when they attempt to divide decision making rights between the corporate office and the local subsidiaries. The two extreme approaches are (1) when the corporate office micromanages the subsidiaries and (2) when the corporate office gives too much freedom to the subsidiaries and does not keep the senior management informed as to what is going on in the business. It is important for these organizations to create an organizational design and structure that will allow the two entities to share and divide the different levels of responsibility and decision making rights so that the emerging market can respond to the trends and conditions in the market.
Prioritize Local Decisions
Subsidiaries must develop an agenda that prioritizes the different levels of strategies that need to be performed in order to reach long term objectives. A potential process for the agenda may be to (a) place issues on the agenda list when they are identified and defined by local and corporate managers and (b) move the issues off the list once they are resolved.
Make Resource Allocation More Flexible
Many multinational corporations do not have a resource allocation system that can meet the needs of the emerging market subsidiaries. Therefore, these organizations will need to define the criteria for emerging market subsidiaries and align them with the corporate...
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